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October 31, 2012

Leadership Change in China Expected to Boost Luxury Goods Sales

Stalled thirst for the finer things predicted to erupt once leaders are in place

Talk about uncertainty—the wealthy in China have stemmed their longing for luxury goods amid trepidation over the upcoming transition of leadership in Beijing, set to begin Nov. 8. Once the changeover is complete, expectations are that the funds will once again flow freely in acquisition of jewelry, gold bars and other tempting treasures bought, not as personal goodies, but instead as conspicuous business gifts.

Bloomberg reported late Wednesday that the cutbacks by Chinese luxury shoppers are projected to end with the old leadership’s exit from office. Once new officials are in place, say many in the trade, customers will return and the goods will start flying off the shelves once again.

Greater China, which includes the mainland, Hong Kong and Macau, has the second-largest luxury market in the world, according to Bain & Co., at 27 billion euros ($35 billion), and every four luxury shoppers across the world, one is Chinese.

One thing driving that market higher is the practice of buying flashy gifts for business associates and bureaucrats. But gift-giving is a major factor in both personal and professional arenas, and reciprocity is its foundation. According to CLSA Ltd., approximately 30% of luxury industry sales in China are purchases of business and wedding gifts, as well as presents purchased to mark other personal celebratory events.

According to Kent Wong, managing director at Chow Tai Fook Jewellery Group Ltd., the world’s biggest jeweler, business gift shopping will drive luxury sales higher in 2013. And deprivation, of sorts, has made the heart grow fonder.

He was quoted saying, “We expect industry sales to grow more than 10% in the second half of next year, driven by pent-up demand for luxury. When new government officials take office, they will lay out policies and strategies that would clear investment uncertainties and pave the way for corporate gifting to pick up.”

Even though it is already known who will fill top government positions, countrywide changes are also taking place among the officials and bureaucrats at state-owned enterprises, government departments and local agencies. “Upon the completion of party congress, we’ll know not only who will come to power, but also get to know who is in charge of which particular organization or department,” said Wong in the report. “This would help build confidence for corporate gifting demand to return.”